Child-Rearing Cost Climbs 2.6% for 2012 Babies, U.S. Says

Aug. 15 (Bloomberg) -- A middle-income family will spend
$241,080 on average for 18 years to raise a child born in 2012,
a 2.6 percent increase from a year ago that outpaces the broader
inflation rate, according to a government report.

Housing was the largest expense at 30 percent of spending,
the U.S. Department of Agriculture said yesterday in an annual
report that also showed wealthier families spent triple the
amount on entertainment and reading materials as poorer
households. Child care was the second-biggest expense in more
affluent homes, while lower-income households spent a greater
proportion on food as federal nutrition aid reached records.
Health costs pinched all household budgets.

“The cost of raising a child increases as family income
goes up because families have more resources,” Kevin Concannon,
the USDA’s undersecretary for food, nutrition and consumer
services, said on a conference call with reporters. “The
stresses and the challenges get worse as families have less
access to resources.”

Child-raising costs are climbing just as elements of the
federal health-care overhaul take effect, aiming to limit price
gains, and as a rebound in U.S. home prices adds expenses for
families. U.S. inflation in the year through June was 1.8
percent, according to the government. The USDA report excluded
payments for college.

Income Differences

The study, conducted since 1960, tracks seven categories of
spending, such as housing, transportation and clothing, and is
used to help courts and government agencies estimate child-support costs, the USDA said.

For a typical two-parent middle-income family, spending on
each child was $12,600 to $14,700 in 2012. A family earning less
than $60,640 a year will probably spend $173,490 in 2012
dollars, while parents earning more than $105,000 may pay
$399,780, according to the study.

Adjusted for anticipated inflation, raising a child in a
middle-class family would cost $301,970, the USDA said. The
report includes an online calculator to help figure out costs.

Expenses were highest for children raised in the urban
Northeast, followed by West and Midwest cities, the USDA said.
The urban South and rural areas were the least expensive. While
housing accounts for the biggest portion of expenses, across
income groups, the next-highest expenses vary depending on
household wealth.

Child Care

Higher- and middle-income households spend the second-most
on child-care and education, followed by food, while nutrition
was a bigger share of expenses for poorer households, with more
lower-income families caring for their children at home, the
study said. Transportation was the third-biggest expense across
all income categories.

Costly services are making day care unaffordable for some
low-income families, said Michelle McCready, a senior policy
adviser with Child Care Aware of America, an Arlington,
Virginia, group that advocates for government aid to poorer
households. Those families rely on unregulated facilities or
relatives to care for children, or in some cases give up jobs to
raise them, she said.

“Parents do the math and either stay at home or go with
unregulated care,” she said.

Lower-income families also are struggling more to cover
food costs, according to government data. Enrollment in the
Supplemental Nutrition Assistance Program, known as food stamps,
reached a record 47.8 million people in December 2012, and
annual spending has doubled since 2008. With children
representing 45 percent of all recipients, the program has
become crucial for lower-income families with children,
Concannon said.

Housing Costs

Housing has covered almost a third of costs to raise a
child since the first study. The real-estate market collapse
beginning in 2007 helped constrain cost increases, easing budget
pressures for some families, said Mark Lino, the USDA researcher
who wrote the report. A rebound, while healthy for the broader
economy, may actually make home affordability more difficult for
some families, he said.

“Health-care and child-care costs have been stresses to
families over the past few years” more than housing has, Lino
said in an interview. And while depressed property values
lessened some strains, “falling home prices created their own
sets of problems,” he said.

Low-income households have less to spend on personal-care
items, entertainment such as video games or sports equipment,
and reading materials, as basic necessities take a greater
proportion of incomes. Since 1995, the lower third of households
increased such miscellaneous spending by less than 1 percent, a
decline in real expenditures when inflation is considered, Lino
said. Spending on such items in wealthier homes rose 37 percent.

‘Cover Necessities’

“It’s a zero-sum game, and the bottom third has had to
shift money to cover necessities,” he said. “The upper-income
families have more flexibility.”

In the 1960 report, housing accounted for 31 percent of
child-raising costs, then estimated at $25,230 -- equal to
$195,690 in 2012 dollars. Food was the second-biggest expense,
at 24 percent, with transportation at 16 percent, up from 14
percent in 2012.

Health care covered 4 percent of costs in 1960, half the
2012 level. More-expensive medical treatments for children,
especially babies, has pushed spending higher at a faster rate
than other costs, said Carolina Herrera, research director for
the Health Care Cost Institute, which analyzes data given by
insurance companies to understand spending trends.

Education and child care were 18 percent of 2012 costs, up
from 2 percent in 1960 when most children were cared for at
home. Median household income in 1960 was $5,600 -- or $44,176
in today’s dollars. U.S. household income in 2011, the most
recent data, was $50,054.